[Here's a guest post from IIATMS reader @Jerktweets which explains the new Derek Jeter deal a lot better than I ever could.]
Earlier today, it was announced that Jeter has been signed to a new 1 year/12 million dollar deal by the New York Yankees. We all know that the 189 million dollar luxury tax payroll limit has been a big issue. So how exactly does Jeter’s new deal affect
the payroll?

Technically, Jeter was still under contract this offseason as part of his original three-year deal. The deal was structured so that he was paid 15, 16, & 17 million for three years. Included was a player option worth 8 million that if declined gave Jeter 3 million dollars. The CBA states that player options are considered guaranteed years and will be included in any average annual value calculations. For luxury tax purposes Jeter’s contract was a four year deal worth 14 million per year.

Now, the player option clause also states that if the option is declined then for the year of the player option the team will be hit with a penalty to their luxury tax payroll equal to the difference between paid (physical money) and attributed (luxury tax AAV) for the contract length and the buyout. In this case, Jeter’s contract was paid out at 16 AAV, but attributed at 14. This adds an extra 6 million + 3 million buyout if he declines the option to 2014 without having Jeter under contract! Had he accepted, the AAV of 14 would have counted for 2014 with an additional 1.5 million added thanks to a Silver Slugger bonus despite the option being worth only 9.5 million physical dollars.

As part of Jeter’s new deal the player’s option was nullified. This means that the buyout was skirted. However, nullifying a player’s option still incurs the tax penalty. For luxury tax purposes the new contract counts as 12 + 6 million in penalty for a total of 18 million to the luxury tax. This jives with the many tweets stating that the Yankees will take a ~2.5 million increase in luxury tax over the original player option.

If the Yankees are still thinking of going under the 189 limit they will be in trouble as they have just added an unnecessary 2.5 million to their cap total.